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1. One of the few books that attempts to link non-linearity and information/chaos theory to today’s markets/economies2. Using economic history and market practitioners, Gilder effectively crushes the perceived wisdoms of broken sources3. Juxtaposed vs government intervention, a refreshing reminder of the role of the capitalistic entrepreneur in America

Content Highlights

1. “Most human beings understand that their life is full of surprises.” (pg 1) #intro chapter – The Need for a New Economics2. “We are almost entirely incapable of predicting the future. Yet economics purports to be strangely exempt from this fact” (pg 1)3. “It is an economics of surprise that distributes power as it extends knowledge” (pg 5) #truth about innovation and evolution4. “All information is surprise; only surprise qualifies as information. This is the fundamental axiom of information theory” (pg 15)5. “From Adam Smith’s days to ours, economics has focused on the nature of economic order” (pg 16) promising #certainty?6. “Interest rates are critical for information-theory economic analysis because they are an index of real economic conditions” (pg 24)7. “Profits differentiate between the normally predictable yield of commodities and the unexpected returns of creativity” (pg 25)8. #EntropyEconomics (Chapter 4) = one of the best named chapters of the last 3 yrs #study9. “economists everywhere have counseled governments… to attend everything except what matters most: innovation” (pg 27)10. “The most important feature of an information economy… is the overthrow, not the attainment, of equilibrium” (pg 30) #nonlinear11. “Entropy is a measure of surprise, disorder, randomness… its opposites are predictability, order, tyranny…” (pg 34)12. “Republicans… both Bushes through McCain… all cherish the illusion that leading economists possess vital wisdom” (pg 38) #joke13. “Believing that a weaker Dollar is just the thing to spur a sluggish economy… they miss the devaluation of all the assets” (pg 38)14. “George Romney capitulated to these forces” (pg 38) and being advised by Glenn Hubbard, ultimately Mitt did too #BigMiss15. “Wealth actually springs from the expansion of information and learning” (pg 46) #capitalism #freedom #liberty

16. “Smith’s vision of the entrepreneur as a tool of the market… rather than its creator constitutes the original sin” (pg 47) #AdamSmith17. The Light Dawns (chapter 7 concludes that Smith, Keynes, Hayek, and Samuelson have all been proven wrong) (pg 63) #true18. “Looking for disequilibria to reconcile into equilibrium, economists suppress multifarious complexities” (pg 71) #yep19. “Savings reflect the profitability – the upside entropy – in an economy” (pg 72) excess cash flows born out of positive info surprise20. “The entrepreneur is the savior of the system because he capitalizes himself” (pg 77) #evolution21. Fallacies of Entropy and Order (chapter 9) (pg 79)22. “Most of the history of economics revolves around the issues of how order and equilibrium can be maintained” (pg 85) #Krugman23. “None of these economists of equilibrium was comfortable with a dynamic economics” (pg 85) #Growth #Change #Surprise24. “Order is not spontaneous, but it is a necessary condition for all the surprises of freedom and opportunity” (pg 87)25. “Everyone thinks he knows what information is… information is change in what we know” (pg 101) great quote26. “They had no heads. The frenzy was all they had… the urge was all they felt” –Tom Wolfe (pg 104) #behavioral econ27. On Austin Goolsbee: “chairman of the President’s council of economic advisors exhibited as little understanding…” (pg 114)28. “… much of the profession is empirically bankrupt because it is no longer taught economic history” –Charles Kindleberger (pg 115)29. “The successful executive pursues not efficiency but effectiveness” –Peter Drucker (pg 126)30. “The goal of financial reform should be to end this divorce between knowledge and power” (pg 132) secular #theme of book

31. “Unlike an inexorable, Newtonian “great machine”, the economy is not a closed system” (pg 133) don’t tell #Keynesians that32. “High entropy regulation destroys the environment that it seeks to enhance” (pg 150) #BigGovernmentIntervention #Fed33. “If a science has an adjective, it probably isn’t a science” –Richard Feynman (pg 159), Ivy League “economics” is no science34. “Pursue opportunities is the counsel of the capitalist” (pg 161) #bingo35. “It has become a virtual casino” –Bob Wilmers (CEO of M&T Bank) (pg 168)36. “Paulson/Bernanke in constant conversation with unhealthy institutions; wouldn’t talk to leaders of healthy banks” –Allison (pg 170)37. “In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns” –John Allison (pg 175)38. “wealth is only valuable if combined with information” (pg 178) #perspective39. “America’s leading entrepreneurs, with some exception, display discipline and self control, hard work and austerity” (pg 183)40. “Greed is an appetite for unneeded and unearned wealth and power” (pg 184) beauty quote about #politicians41. “All progress comes from the creative minority” (pg 192) otherwise why would society glorify their stories?42. “Taleb, in all likelihood, deems you a turkey” (pg 197) in Chapter 18, The Black Swans of Investment, criticizing Taleb43. “I believe, however, that the fool of randomness is Taleb” (pg 200) #aggressive!44. “21st century intellectuals have looked to information theory for a solution” (pg 201) maybe, sort of, but hardly consensus45. “Great books, great ideas, and great thinkers” (pg 207) on Mark Skousen’s Freedom Fest annual conference

46. “No one in your company knows less about your business than your see eff oh” –Peter Drucker (pg 218) CEOs need vision47. “Stockman ended up capitulating to his critics” (pg 219) appropriately critical of David Stockman’s “CFO” myopia48. “0% interest rate policy of the Federal Reserve diverts the wealth of savers to governments, crony capitalists, etc” (pg 224)49. “History tells us that the threat to prosperity is not debt but socialism” (pg 225) great focus pt quote50. “Just as the post war recovery of the 1950s confounded Paul Samuelson’s gloomy predictions” (pg 234) #Keynesian failures51. “fragmented, the academic sciences are turning to politics, panics, and cartels to preserve their old privileges” (pg 270)52. “Most of the courses they took were either self-evident or wrong, ideological, or tautological, twisted, or trivial” (pg 270)53. “Now an abstruse and occasionally revealing discipline has emerged called quantum information theory” (pg 271)54. “Governed by entropy (measuring freedom of choice), it is a science of human liberty” (pg 271)55. “Just as the bureaucrat needs arbitrary power, the capitalist needs capital” (pg 275) #excellent conclusion

This is a thought leader’s book. With so many people whining about not having a “solution” to Washington’s economic policies, ask yourself if we’re asking the right leaders for new ideas. This book is the antichrist of broken western-academic-economic-policy group-think.KM

Leave it to George Gilder to lay the foundation for a revolution in economics and finance in the 21st century based on information theory. For far too long, economists and financial theorists have had their collective heads buried in the sands of static equilibrium, perfect competition, and efficient markets. What use, after all, is a body of work that leaves 80 percent of real world economic activity over the past 200 years unexplained?

Using tenets of information theory, Gilder exposes the flaws and fatalities of conventional economic and financial thinking. In doing so, he brings to light the centrality of the entrepreneur in a capitalist system as the lynchpin of growth, job and wealth creation. In grand fashion, Knowledge and Power provides an innovative framework for analysis and policy that brilliantly transcends the work of economist Joseph Schumpeter and modern-day complexity theorists.

There is so much path-breaking ground covered in Gilder's book that there is no way to do the material justice in a short review on this website. Suffice it say that in this reviewer's humble opinion, Knowledge and Power should be read, discussed and debated within the halls of academe, inside corporate boardrooms, and by policymakers at all levels of government worldwide. You may not agree with everything the author says in his book, but it would be a grave error to dismiss what Gilder is attempting to accomplish. That is, using information theory to help explain and illuminate the recipe of a healthy and vibrant economic system and the problems inherent in static, demand-driven socialist and communist systems.

In summary, Gilder's book is a sorely needed and timely antidote to all that ails conventional economic and financial thinking. Read it, research it, discuss and debate it. But by all means, do not ignore it. Knowledge and Power is high entropy reading.

Writing in the tradition of Confucius and other philosophers who sought to understand how order could emerge out of apparent chaos, George Gilder makes a compelling case in this book that, as the global economy grows ever bigger, the central role of information becomes all the more critical. Actions that distort or suppress information, such as misguided or arbitrary regulations, market (eg money, interest rate) manipulation, or punitive taxation thus have the power to do damage much farther and wider than is generally appreciated. Conversely, if information is allowed to flow free of such distortions, within a robust yet passive transmission mechanism of rule of transparent law and clear property rights, its power to stimulate vast technological leaps forward through entrepreneurial activity has never been greater. Sure, the world faces challenges ranging from excessive debts, demographics and environmental concerns, but if the flow of information is allowed to work its magic--by its very nature obscured from view--even the seemingly most intractable problems of our time will be solved through purposeful, informed human action. Intuitively, we all know that we make better decisions when better informed. George Gilder demonstrates convincingly that the complex systems of economy and society are ultimately no different, but that they must be left to inform themselves, rather than to be somehow arbitrarily planned or directed from above.